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Dynamic pricing in the hotel industry: everything you need to know

Dynamic pricing and personalized pricing. These terms most probably sound familiar to you if you manage a hotel. But what exactly does dynamic pricing mean in the hotel industry? Why do you need it? What do you need it for? And most importantly: how to use it successfully?

My goal is to answer these questions in the upcoming weeks. Let's start!

What is dynamic pricing?

Shortly, dynamic pricing is a strategy that uses variable prices instead of fixed prices. The essence of the method is to adjust the price of services and products to the constantly changing needs of the market.  Dynamic pricing means updating prices in real-time in quick response to changing market demands, which is why dynamic pricing is also called real-time pricing. For a hotel, this strategy can be applied to rooms sold through online travel agencies. 

It’s important not to confuse it with personalized pricing. Personalized pricing monitors not only consumer demand, but also different customer groups and their behavior, and updates the price accordingly. In the hotel industry, personalized pricing should be used carefully as it requires a huge amount of personal data.

Therefore, in this article we focus on a dynamic pricing strategy that helps optimize sales without putting guests’ personal information in potential danger.

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What are the benefits for you?

Generates higher demand

  • Keeps your prices competitive: Your prices should reflect market trends and be in line with competitors’ prices. An out-of-average, remarkably low price often achieves the opposite effect of the original goal. Guests may find it strange and suspicious, so they end up not booking. Your hotel will seem more reliable to guests if your prices harmonize with market trends and competitors.

  • Targets new customers and increases sales: You can make a complex demand forecast that processes the seasonality and guest loyalty, while taking into account:
    - booking details
    - conversions
    - cancellations
    - group bookings
    - no shows
    so your prices can be adjusted to the needs of your guests.

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Boosts sales and increases revenue

As a hotel or revenue manager, your main job is to minimize the number of unoccupied rooms and maximize the price guests pay for that room. We know this is a challenging task because competition is strong and the demand, therefore the market is constantly changing. This is where the hotel’s dynamic pricing strategy comes in, which helps in two ways:

  • boosts sales in case of low demand and occupancy
  • raises prices in case of high demand and occupancy

Dynamic pricing is about to price your rooms at or just a tiny below the market price so that potential guests choose your hotel over your competitors. What does this mean for you? Increased occupancy and, of course, higher revenue.

In periods when demand and occupancy are lower, prices also decrease. This will hit two birds with one stone:

  • you can increase your occupancy in the low season
  • you can also target new, more price-sensitive guests who would be hindered from paying the higher price

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A better understanding of guest behaviour and booking habits

Dynamic pricing adjusts average room rates to suit guests' behaviour and booking habits. With that it helps you to get to know your existing and potential guests better:

  • you can track your different target groups,
  • their booking habits,
  • their average length of stay,
  • room preferences
  • their online behavior during holidays, high season, and more.

Thanks to this information, average room rates can be adjusted according to changing guest needs. This helps you reach the main goal: higher occupancy with maximized revenue.

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What do you need for dynamic pricing?

An innovative PMS system

You will certainly need a reliable hotel PMS that provides you with transparent, comprehensive and real-time reports. That's exactly what SabeeApp PMS offers to you. Based on these reports you can successfully invent dynamic pricing strategies in your hotel. 

Microdata

The microdata is valuable booking and guest information. You can get them from your PMS, so only you and your staff have access. I recommend starting the process with this data.

Examples of microdata:

  • Hotel demand or pickup: shows the distribution of bookings for a specific date or period. It allows you to see how many new room nights you have won or just lost in a predetermined period of time.

  • Booking window: The period between the date of booking and the date of arrival. For more effective pricing, you need to know how much earlier your guests will be booking for certain dates and periods.

  • Comparison: It’s important to often compare your current performance with your goals and past results for a given time period. One such check will reveal if changes are needed so you can adjust immediately.

Macrodata for the bigger picture

You can usually access this information free or through paid services that are available to almost anyone. OTAs also have a huge amount of information that you can access on the extranet.

Examples of macrodata are:

  • Seasonality: one of the main factors determining the demand

  • City-level demand: events and happenings in or around the city that affect demand and the number of guests arriving there.

  • Competitors' prices: the importance of this hardly needs to be explained. In order to keep your prices competitive, it is essential to monitor the prices of competing accommodations.

Final words

Based on this article, you now have a better understanding of what dynamic pricing is and why it is so important in the hotel industry. Next week, we’ll be one level up on the subject and I’ll help you figure out how to successfully use a dynamic pricing strategy in your hotel. Stay tuned!

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